Asymmetry of information

Agency theory talks about asymmetry of information. The principal and agent have different information and different information needs. That's relevant to explaining a perspective of this project. One person saw that it 'petered out' rather than coming to a clear conclusion. At the final stage, operation managers were able to continue to call the consultants for advice, who therefore billed for extra days. If the principal /Operations Manager perceived a need for information & lacked confidence in own ability to carry on and implement the changes, but perceived the consultant / agent had that information, then contact was continued, and the billing.

Keil, Mann and Rai discuss this escalation in their paper on why software projects escalate [1]; I think it is irrelevant whether or not the project is a software one. There seems to be a lot of research on software projects and at least some of it must be transferable to non-software projects. Keil et al's quantitative study found that two constructs associated with agency theory, were associated with projects that could be predicted to escalate. The concepts are:

• goal incongruency


• information asymmetry

Goal incongruency is where there is potential conflict between the principal and the agent, such as the agent acting for his own best interests rather than that of the principal.

Information asymmetry is where
"the agent is assumed to have private information to which the principal cannot costlessly gain access." Baiman[2]

Implications for good practice were the importance of good communication and monitoring of projects to avoid information asymmetry. They also suggested management should implement early warning systems to detect escalation.

Good communication is something the participants have mentioned in my case study – they require transparency. A combination of monitoring mechanisms and good communication seem to have made this project successful from the perspective of most of the participants.

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[1]Mark Keil; Joan Mann; Arun Rai, Why Software Projects Escalate: An Empirical Analysis and Test of Four Theoretical Models, MIS Quarterly, Vol. 24, No. 4. (Dec., 2000), pp. 631-664. http://links.jstor.org/sici?sici=0276-7783%28200012%2924%3A4%3C631%3AWSPEAE%3E2.0.CO%3B2-2
[2]Stanley Baiman, AGENCY RESEARCH IN MANAGERIAL ACCOUNTING: A SECOND LOOK, Accounting Organizations and Society Vol 15.No 4 p.p . 341-371.1 990.